19
One positive way to frame innovation failure is: “failure is the experience that
precedes success.” There is rarely successful innovation without a fair share of failure along the way. Every successful innovator deals with the frustration, pain, and
anxiety associated with numerous setbacks. I actually invite you to embrace the
concept of clever failure, namely to fail often, cheaply, and as early as possible in
the innovation process. Because failure is inherent to innovation, organizations
should embrace it and help employees brace for it, and provide mechanisms to derisk it instead of shying away from it. Take pains to understand why consumers
rarely adopt or purchase innovations at the rate developers expect. A basic understanding of behavioral economics provides insight and can help organizations plan
for the way human beings act, adapt, and react.
1.8.1 Loss Aversion
Loss aversion refers to when losses loom larger than gains.
16
This asymmetry
between the power of positive and negative expectations or experiences has an evolutionary history. Species that treat threats as more urgent than opportunities have a
better chance to survive and reproduce (Kahneman and Tversky 1979).
What has loss aversion to do with innovation failure? A lot. At its core, loss aversion is an expression of fear. Losses elicit stronger, more visceral feelings than comparable gains. When our customers, used to the value that a good or service provides,
are faced with innovative alternatives, they might rather stick with the one they feel
comfortable with to reduce the risk of losing the value they are used to receive.
This has obvious implications for the rate at which innovations are adopted and
purchased. Agriculture provides excellent examples of how loss aversion can significantly obstruct the adoption of technologies. Ward and Singh (2014) elegantly
demonstrated that more loss-averse farmers are less likely to switch to new rice
cultivars, although the new cultivars clearly outperform older, popular varieties
under both normal and drought conditions. No wonder that many new cultivars,
across many different crops, fall short of expected adoption, and therefore do not
achieve profit or impact goals.
1.8.2 Status Quo Bias
Status quo bias refers to the tendency to stick to the current status of affairs. One
implication of loss aversion is that individuals have a strong tendency to remain at
the current status quo. This has been extensively demonstrated through decisionmaking experiments (Kahneman et al. 1991).
Status quo bias explains why we are biased toward the default option: Most people tend to use their default Internet browser instead of installing a new one which
16 Richard Kahneman, 2002 Nobel Memorial Prize Winner in Economic Sciences.
1 The Quest for Innovation: Addressing User Needs and Value Creation
One positive way to frame innovation failure is: “failure is the experience that
precedes success.” There is rarely successful innovation without a fair share of failure along the way. Every successful innovator deals with the frustration, pain, and
anxiety associated with numerous setbacks. I actually invite you to embrace the
concept of clever failure, namely to fail often, cheaply, and as early as possible in
the innovation process. Because failure is inherent to innovation, organizations
should embrace it and help employees brace for it, and provide mechanisms to derisk it instead of shying away from it. Take pains to understand why consumers
rarely adopt or purchase innovations at the rate developers expect. A basic understanding of behavioral economics provides insight and can help organizations plan
for the way human beings act, adapt, and react.
1.8.1 Loss Aversion
Loss aversion refers to when losses loom larger than gains.
16
This asymmetry
between the power of positive and negative expectations or experiences has an evolutionary history. Species that treat threats as more urgent than opportunities have a
better chance to survive and reproduce (Kahneman and Tversky 1979).
What has loss aversion to do with innovation failure? A lot. At its core, loss aversion is an expression of fear. Losses elicit stronger, more visceral feelings than comparable gains. When our customers, used to the value that a good or service provides,
are faced with innovative alternatives, they might rather stick with the one they feel
comfortable with to reduce the risk of losing the value they are used to receive.
This has obvious implications for the rate at which innovations are adopted and
purchased. Agriculture provides excellent examples of how loss aversion can significantly obstruct the adoption of technologies. Ward and Singh (2014) elegantly
demonstrated that more loss-averse farmers are less likely to switch to new rice
cultivars, although the new cultivars clearly outperform older, popular varieties
under both normal and drought conditions. No wonder that many new cultivars,
across many different crops, fall short of expected adoption, and therefore do not
achieve profit or impact goals.
1.8.2 Status Quo Bias
Status quo bias refers to the tendency to stick to the current status of affairs. One
implication of loss aversion is that individuals have a strong tendency to remain at
the current status quo. This has been extensively demonstrated through decisionmaking experiments (Kahneman et al. 1991).
Status quo bias explains why we are biased toward the default option: Most people tend to use their default Internet browser instead of installing a new one which
16 Richard Kahneman, 2002 Nobel Memorial Prize Winner in Economic Sciences.
1 The Quest for Innovation: Addressing User Needs and Value Creation